Transport-Centric Macroeconomic Metrics: July 23, 2021 Update

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DAT DRY VAN

Contract Van Rates and Spot Van Rate Trends

According to DAT, the average TL Dry Van contract rates rose to $2.72 / mile in June, while the spot rates (Excluding broker markups) are at $2.67.  This represents a 36% YoY increase in contract rates and an even larger increase in spot rates.

To give context to these numbers, a “typical” TL/LTL shipper historically has spent 3-5% of their sales revenue on freight.  For a hypothetical company with $5 billion USDs in annual revenues, that would have equated to ~$200MM in freight spend in 2019.  

However, given what we are seeing in the TL spot and contract markets, as well as the insanity in international shipping, our hypothetical shipper is likely incurring $100MM more in freight expenses than they were just 2 years ago.  This number is taken directly from the bottom line and will have a substantive impact on EPS.  

One must expect that these costs will ultimately be passed to the customer.

While DAT has reported record volumes in June, on a more hopeful front (at least from a shipper’s perspective) they also are seeing a reduction in the ratio of posted loads to trucks across dry van, reefer and flatbed.  

The on-going realignment of supply and demand can also be inferred by the flattening of TL pricing over the past few months as record numbers of new, but small, carriers enter the market.  

However, longer term, one must wonder if the floor for rates has been raised considerably given what we’ve seen in terms of driver compensation, asset costs (new and used), insurance and maintenance. 

Source: DAT

DIESEL

Diesel Price Trends

The national average price of diesel fuel rose to $3.34 for the week of July 19th.  This was up slightly over the previous week and continues a streak of 13 consecutive weekly increases we started in April.  This follows the record-breaking streak of 20 consecutive weekly increases we saw from November to March.  Since November, diesel prices have gone up 33 of 37 weeks and prices are now up 50% year over year.

Silver linings (or wishful thinking)

• While diesel prices continue to rise, the average rate of increase during our current streak (.017 cents / week) is much lower than what we saw over the winter (.04 cents / week).
• West Texas Intermediate (WTI) oil futures have come down from their early July highs when they peaked at $76.25.  As of July 23rd, the September contracts for WTI were priced just under $72 / barrel.

Given the pull-back in WTI and the beginning of the end of summer driving season, I would anticipate diesel prices to remain in the $3.20-$3.40 range through August (assuming no geopolitical shock to the system).

Sources: OilPrice.com
U.S. Energy Information Administration

OCEAN CONTAINER RATES (Asia to US)

Spot Rates - FEU Container Rates: Asia to US East & West Coast Trends

The situation with ocean container shipping continues to deteriorate.  Freightos reports spot rates (excluding premium fees) were averaging, as of July 23rd, $6,542 / FEU for Asia to US West Coast trade lanes and $10,482 on Asia to US East coast trades.  

Anecdotal reports of spot rates and their associated fees exceeding $20,000 on specific trade lanes are commonplace. 

Further fueling animosity between the steamship lines and the beneficial cargo owners are the windfall profits that the carriers are earning. Maritime data and analysis firm Sea Intelligence reported that 8 of 11 carriers saw revenues increase by more than 50% YoY in the first quarter, while 3 of the carriers saw revenues increase > 100%.  This, despite atrocious on-time service.

And even if/when the container reaches the states, that is not the end of the struggle. 

Inland intermodal port congestion has reached historic proportions, especially in Chicago and Memphis.  In a July 23rd article from FreightWaves, Lance Fritz, Union Pacific CEO, predicted that the disruptions on international freight at the rail yards will last through the end of the year. 

These issues are of such magnitude that they were explicitly addressed by an executive order (EO – 14036) signed by President Biden earlier this month called “Promoting Competition in the American Economy.”  The EO calls for, amongst other things, a recommendation for improving detention and demurrage practices and enforcement as well as a look into potential unfair trade practices of the 3 major ocean alliances.  

Source: Freightos

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Sources referenced in this post: Freightos, US Energy Information Administration, DAT, Freightwaves, WTI

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